Revenue in 2021 exceeded our expectations
The company's revenue in 2021 exceeded our expectations. In 2021, the company's revenue rose 17% year-on-year to 489.9 billion yuan, exceeding expectations, mainly due to strong operation growth in core industries such as Lenovo Group Limited, while net profit rose 49% year-on-year to 5.8 billion yuan, lower than we expected. this is mainly due to the narrowing of investment profits caused by the pullback in some sectors of the capital markets in the second half of 2021. The company redivides and classifies the business sector in 2021, and divides the performance into two categories: industrial operation and industrial incubation and investment.
Trend of development
Focus on the industrial operation of the four major sectors. Lenovo Group Limited, Lianhong Group, Jiawo Group and International Bank of Luxembourg, which are controlled by the company, constitute the industrial operation plate, which is based on the long-term development of IT, new materials, livelihood consumption and financial services respectively. In 2021, the revenue of the industrial operation sector increased by 18% compared with the same period last year, accounting for 99% of the revenue contribution and 79% of the net profit contribution, which is the main pillar of the company's performance. Among them, Lenovo Group Limited's three major businesses, intelligent equipment, infrastructure solutions and solution services, have achieved steady growth and optimization of profit margins; Lianhong Group has benefited from strong demand for photovoltaic and other products, and its revenue has increased by 37% compared with the same period last year. And through acquisitions to achieve the upper reaches of the industrial chain, the future will focus on new energy materials, biodegradable materials and other further layout. Jiawo Group has turned its performance from losses to profits by tamping the strategy of "large items"; the International Bank of Luxembourg has further increased the scale of assets and loans under management, and has set up an investment parent fund with the company's Lenovo Star and Junlian Capital to support the development of scientific and technological innovation in China. We expect the company's industrial operation sector to continue to maintain steady growth in 2022.
Industrial incubation and investment promote scientific and technological innovation. The industrial incubation and investment sector accounts for 21% of the company's homing net profit, which mainly includes the investment income of small and medium-sized technology enterprises incubated or invested directly by the company, as well as the fair value of its fund management companies. Its Lenovo Star manages nearly 90 projects for follow-up financing and withdraws nearly 20 projects. Junlian Capital raised 11.3 billion yuan newly, withdrew or partially withdrew 54, and contributed 2.3 billion yuan to Lenovo Holdings. However, due to the correction of capital markets such as medical and pharmaceutical sectors in the second half of 2021, the prices of companies invested or indirectly invested in the secondary market fell, resulting in a decline in industrial incubation and investment business performance.
Profit forecast and valuation
Taking into account the strong demand of the company's IT and new materials industry, consumer demand gradually recovered from the epidemic, we raised 2022 income by 20% to 532.8 billion yuan; but at the same time, there may still be repair pressure in the capital market to affect the fair value of the companies invested in 2022, we reduced 2022 net profit by 12% to 6.8 billion yuan, and introduced 2023 income and net profit of 576.1 billion yuan and 8.1 billion yuan for the first time. The company's current share price corresponds to a price-to-earnings ratio of 2.9 to 2.5 times the 2023 forecast price-to-earnings ratio of 2022amp. Maintain an outperform industry rating and HK $16.0 (based on the segment summation method, the target price corresponds to 4.8 times 2023 forecast P / E), which is 62% higher than the current share price.
Risk
Uncertainty of IT and innovative consumer business; volatility of capital market.